In my previous article, “Happy Owner, Happy Board: The Strategy of a Private Company Board of Directors,” I highlighted that driving strategy is a principal responsibility of a private company’s board of directors, and that driving strategy is how that board of directors creates value in the enterprise. In a family owned business, understanding the owners’ goals and translating them into an actionable and measurable strategic plan is key.
That’s absolutely true.
However, there is another side of the coin that demands concurrent attention. As business conditions, imperatives and opportunities change, change will also come to the family that owns the business: change in thinking, priorities, objectives and needs. Change will also occur within the family itself and in how its members collectively and individually relate to their business—and to each other.
A recent global survey of more than 1,800 family businesses found that North American family-owned companies are more likely to use corporate governance tools (e.g., independent board of directors, business consultants) over family governance tools (e.g., family constitution, family meetings, consultants for family issues). However, not utilizing family governance tools and not balancing family with business tools can hurt the business. The study found that businesses that use one or more family governance tools show higher levels of firm performance than those that don’t. In addition, businesses that use these tools increase family members’ identification with the firm, especially if more than one tool is used.
There is a crucial balance that must be achieved and maintained between the business goals and the goals of the family that owns the business. Strategic planning for the business alone, certainly very important, can cause a breach in the delicate balance. Maintaining the balance requires strategic planning for the family just as it does the business.
Family leaders must develop strategies to meet the objectives sought by other family members. That includes addressing potential challenges and taking into consideration any goals, risks, capabilities and competing interests.
There is a need to find ways to bridge and resolve identified gaps. There is a need to understand the direction the family wants to go, together and individually, while also looking to set a direction for the future in the business they own. There is a need to balance family dynamics in order to grow a family enterprise.
I was once asked to join the board of a private, second-generation, family-owned business as its first independent director. Ownership was divided equally among three brothers, each of whom held a board seat. While the business was profitable, its industry was changing significantly, and the family recognized that a new strategy was needed for continued growth and profitability..
Yet, as early as my initial board interviews, it became evident that the brothers were at odds, not only over several significant business issues, goals, plans and policies, but also their impact upon the ownership. Evident, too, were family-impacting failures of respect, values, ethics and performance accountability, among others. Angers and frustrations were strongly voiced, making respectful and constructive cross-discussion virtually impossible.
I will leave it to your imagination to say whether I agreed to join this board. Suffice it to say that I made it very clear to the family directors that they were out of balance as a board and as a family, and that they were at real risk of “killing the goose that lays the golden eggs.”
Changes and complexities will always be present. Needs of the business will evolve as will those of the family. The essential challenge is how to deal with them in sync. Families must think strategically and proactively about themselves, just as they do in their business. Maintaining healthy family dynamics in business is essential to success.
This article was guest authored by Barry S. Cain, an expert in Family Business planning and co-founder and director of the Chicago Family Business Council.
©All Rights Reserved. December, 2020. DailyDACTM, LLC d/b/a/ Financial PoiseTM
Bruce Werner is the Managing Director of Kona Advisors LLC and served as an outside director on private company boards for the last three decades. Kona Advisors LLC provides advisory services to the owners, investors and CEOs of private and family-owned businesses. With deep experience in governance, succession planning, finance, strategy and management issues, Kona…
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